Does anyone have experience running both Absolute and Relative Momentum just with the S&P 500 universe? I am running obth a 6 month and 12 month lookback. Using SHY for the relative benchmark. Max sector allocation 25%. Running both Absolute & Relative or just relative strategies underperform the index by 70%. Biggest underperformace is right out of the gate and 2013 to 2015.
Any Insight welcome. Thx
Edit: I did a poor job of reading your post properly, I see that you're doing sector momentum. I have no insight. Ignore post.
Are you looking at sector momentum or cross-section (ie individual stocks)?
I wrote a sector ETF strategy a while back and a cross-section momentum strategy is definitely on my to do list. However, since Quantopian limits the number of stocks available for analysis, it would be a weakened form of momentum.
The reason why I haven't yet written the algorithm is that Q staff have hinted that we would be able to filter the entire stock universe by return performance in the future. So why waste energy now solving a problem that people are already working on? :P
Mind sharing your algo? If you found cross-sectional momentum to be lackluster, you're not the first. I can't find the source, but it has been found that from 2008 onwards, relative momentum has had negative excess return. There is a paper called momentum crashes by Moskovitz (2012) that might explain the issues with momentum http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2371227
By the way, you might think: if positive momentum has large periods of underperformance compared to negative returns, why don't you write a code that assesses for the last month, which would have performed better, and continue with that trend! For instance, it's May 2012, so you go back in time to April 2012 and pretend you are assessing momentum. The best stocks from 12, 6 or whatever months return up to April 2012 are placed in a hypothetical portfolio. The return of this portfolio from April 2012 to May 2012 is calculated. Positive and Negative momentum portfolios are compared, and continue on with the trend.
I actually wrote this code. It doesn't work as well as I thought. It did well after 2008, where it switched to negative momentum very quickly. I think due to random chance, on some months negative momentum would perform better so it would switch a few times per year to negative momentum. This was enough to decrease returns from pure positive momentum.
let me know if you dont get this, first time doing this https://www.quantopian.com/posts/relative-strength-and-absolute-momentum
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